Unifying Concepts: Long-Term Investments in Stocks and Bonds
Response to the following problem:
On January 2, 2009, Drexello, Inc., purchased $75,000 of 10%, five-year bonds of Greasy Trucking as a held-to-maturity security at a price of $77,610 plus accrued interest. The bonds mature on November 1, 2013, and interest is payable semiannually on May 1 and November 1. Drexello uses the straight-line method of amortizing bond premiums and discounts.
In addition to the bonds, Drexello purchased 30% of the 50,000 shares of outstanding common stock of Mellon Company at $42 per share, plus brokerage fees of $450, on January 10, 2009. On December 31, 2009, Mellon announced that its net income for the year was $150,000 and paid an annual dividend of $2 per share as advised by the board of directors of Drexello. The closing market price of Mellon common stock on December 31 was $38 per share
Required:
1. Record all the 2009 transactions relating to these two investments in general journal form.
2. Show how the long-term investments and the related revenues would be reported on the financial statements of Drexello at December 31, 2009.